If you are 52 now, will you accept the proposal to pay $10,000 for ten years sta

Question

If you are 52 now, will you accept the proposal to pay $10,000 for ten years starting now, and starting from age 62 will be paid back $15,000 per year for the following twenty years? Interest rate is 4% per year.

Notes: Compound interest     present value

(1.04)                                       1/(1.04) =        0.96

(1.04)2 = 1.08              1/(1.04)2          0.92

(1.04)10 = 1.48             1/(1.04)10        0.67

(1.04)20 = 2.2               1/(1.04)20        0.45

How does your answer change if interest rate is 3%?

Explanation / Answer

If rate is 4% and such deposit is done,

In the end of initial 10 years

money will be

$124864

So in next 20 years,

amount will become

$274700

and I am being given

$15000 * 20 = $300000

so I would accept if it is 4% rate

now in case of 3% rate

amount at end of 10 years is $118000

hence after next 20 years it will be

$213121

so i ll accept

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